SEC Charges Hedge Fund Manager for Unregulated Digital Assets

California-based Crypto Asset Management LP has been charged for falsely advertising a fund as regulated by the SEC.

The US Securities and Exchange Commission (SEC) has initiated its first-ever enforcement action against a digital hedge fund manager. In a press release, the US regulator announced that Crypto Asset Management LP (CAM) has falsely advertised an unregistered investment company fund as the “first regulated crypto asset fund in the United States”.

“Hedge funds seeking to ride the digital asset wave continue to proliferate,” said C. Dabney O’Riordan, Co-Chief of the Asset Management Unit. “Investment advisers must be sure that the funds they offer adhere to the applicable registration obligations and must accurately represent their funds’ regulatory status to investors.”

According to the SEC, the California-based hedge fund manager and its managing director, Timothy Enneking, raised over $3.6 million in late 2017 while falsely claiming the fund was regulated by the financial watchdog and had filed a registration statement with the agency. The fund was operated as an unregistered investment company by CAM, who engaged in an unregistered non-exempt public offering and invested more than 40 percent of the fund’s assets in digital securities.

CAM was contacted by SEC staff and agreed to a cease-and-desist order and censure without admitting or denying the regulator’s findings against them. The hedge fund manager agreed to pay $200,000 in penalties and offered buy backs to affected investors after it ceased its public offerings.

Crypto Asset Management LP’s website describes the fund manager’s focus as “primarily on managing investment portfolios of cryptocurrency and related assets”. As of the time of the writing of this article, the site does not make any claims of regulatory compliance.

The SEC’s investigation was conducted by Ranah L. Esmaili and supervised by Adam S. Aderton of the Asset Management Unit.